Knowledge that Transforms

Multinational firms (MNEs) dominate trade flows, yet their foreign production decisions are often ignored in firm-level studies of exporting and importing. Using newly merged data on U.S. firms’ trade and global production, we show that MNEs are more likely to trade with countries that are proximate to their affiliates. We rationalize these patterns with a new source of firm-level scale economies that arises when fixed costs to source from, or sell in, a market are shared across the MNE’s plants. These shared fixed costs create interdependencies between firms’ production and trade locations that generate third-market responses to trade policy changes.

Addressing climate change requires individual behavior change and voter support for pro-climate policies, yet surprisingly little is known about how to achieve these outcomes. In this paper, we estimate causal effects of additional education on pro-climate outcomes using new compulsory schooling law data across 20 European countries. We analyze effects on pro-climate beliefs and behaviors, as well as novel data on policy preferences and voting for green parties. Results show that a year of education substantially increases pro-climate beliefs, behaviors, and policy preferences.

Relative intergenerational mobility declined for cohorts born around 1960 compared to those born around 1950. The former entered the labor market after the rise in inequality around 1980, while the latter entered the labor market earlier. We show that the rank-rank slope rose from 0.25 to 0.36 and the intergenerational elasticity increased from 0.28 to 0.45. These increases are more pronounced for men than for women. Increases in returns to schooling and in the gradient in the likelihood of marriage by parent income are contributors to increased intergenerational persistence.

Using a novel regional database covering over 200 elections in several European countries, this article provides new empirical evidence on the political consequences of fiscal consolidations. To identify exogenous reductions in regional public spending, we use a Bartik-type instrument that combines regional sensitivities to changes in national government expenditures with narrative national consolidation episodes. Fiscal consolidations lead to a significant increase in extreme parties’ vote share, lower voter turnout, and a rise in political fragmentation. We highlight the close relationship between detrimental economic developments and voters’ support for extreme parties by showing that austerity induces severe economic costs through lowering GDP, employment, private investment, and wages. Austerity-driven recessions amplify the political costs of economic downturns considerably by increasing distrust in the political environment.

We develop a noncooperative bargaining model with incomplete information linking dowry payments, domestic violence, resource allocation between a husband and a wife, and separation. Our model generates several predictions, which we test empirically using amendments to the Indian antidowry law as a natural experiment. We document a decline in women’s bargaining power and separations and a surge in domestic violence following the amendments. These unintended effects are attenuated when social stigma against separation is low and, in some circumstances, when gains from marriage are high. Whenever possible, parents increase investment in their daughters’ human capital to compensate for lower dowries.

Why do homeowners default on mortgages? This paper studies the question using a survey specifically designed for the purpose, with a sample drawn from (and matched to) rich administrative data. I find that a wide variety of typically unobserved liquidity shocks together trigger nearly all defaults, so “strategic” default with no liquidity trigger is much less common than it usually appears. Conversely, even in this uniquely rich data, I find that many foreclosures are not triggered by negative home equity, contrary to the predictions of almost every model in the literature.

We estimate the impact of local government fragmentation on economic activity in Indonesia from 2000 to 2014, when the number of districts increased by 50%. Exploiting idiosyncratic variation in the timing of district splits, we find that fragmentation reduces district GDP in the short term despite large increases in central transfers. The GDP decline is larger in “child” districts that acquire a new capital and government. Furthermore, splitting districts focus spending on administration without improving public services or reducing red tape and corruption. The downsides of fragmentation due to economies of scale and low bureaucratic capacity outweigh potential upsides.

We assess the predictive power of two measures of competitiveness for education and labor market outcomes using a large, representative survey panel. The first is incentivized and is an online adaptation of the laboratory-based Niederle-Vesterlund measure. The second is an unincentivized survey question eliciting general competitiveness. Both measures are strong predictors of income, occupation, level of education, and field of study. The predictive power of the new unincentivized measure is robust to controlling for other traits, including risk attitudes, confidence, and the Big Five personality traits. For most outcomes, the predictive power of competitiveness exceeds that of the other traits.

One of the dangers of high inflation is that it can cause individuals to pay close attention to it. This internalization of inflation can lead to an accelerationist regime, making inflation harder to control. We empirically assess the relationship between attention and inflation for 38 countries. Our measures of attention are constructed from Internet search behavior or the popularity of inflation mentions on Twitter. We find evidence that attention thresholds exist for most of the countries, and that they typically occur between 2% and 4% inflation. We also document interesting variability across countries and find similar thresholds in newspaper coverage of inflation.

This paper exploits the universe of credit- and debit-card transactions in China during 2013–2015 and provides the first nationwide analysis of the health care cost of PM2.5 for a developing country. We leverage spatial spillovers of PM2.5 from long-range transport to generate exogenous variation in local pollution, and we employ a flexible distributed lag model to capture semiparametrically the dynamic response of pollution exposure. We find significant impacts of PM2.5 on health care spending in both the short and medium terms. A 10 μg/m3 decrease in PM2.5 would reduce annual health care spending by over $9.2 billion, about 1.5% of China’s annual health care expenditure.